AIP Portfolio Management & Asset Allocation 2

Question 1

An investor with a 30-year horizon wants to maximize long-term wealth. Which asset allocation strategy is most appropriate?

Accepted Answer

Heavy equity tilt with gradual de-risking over time

Answer

Long time horizons allow investors to tolerate short-term volatility in exchange for higher long-term equity returns, with gradual de-risking as retirement approaches.

Question 2

Which rebalancing trigger approach adjusts portfolio allocations only when asset weights deviate beyond a predetermined threshold?

Accepted Answer

Threshold (band) rebalancing

Answer

Threshold or band rebalancing triggers trades only when an asset class drifts beyond a set percentage from its target, reducing unnecessary transaction costs.

Question 3

What does the Sharpe ratio measure in portfolio evaluation?

Accepted Answer

Excess return per unit of total risk (standard deviation)

Answer

The Sharpe ratio divides a portfolio's excess return over the risk-free rate by its standard deviation, measuring risk-adjusted performance.

Question 4

A portfolio manager shifts allocations away from long-term targets based on short-term market forecasts. This is best described as:

Accepted Answer

Tactical asset allocation

Answer

Tactical asset allocation involves short-term deviations from the strategic target to exploit perceived market mispricings or economic trends.

Question 5

Which risk measure captures only the downside portion of return volatility, making it preferred by some risk-averse investors?

Accepted Answer

Semi-deviation (downside deviation)

Answer

Semi-deviation measures variability only for returns below a target or mean, focusing on the negative outcomes investors most wish to avoid.

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP Portfolio Management & Asset Allocation 2